Breach of copyright and breach of confidence distinguished in website dispute

In TICA Default Tenancy Control Pty Ltd v Datakatch Pty Ltd [2016] FCA 815, the Federal Court of Australia held that the unauthorized access by two ex-employees of their former employer’s website and database to develop ideas for their own similar service constituted a breach of confidential information, but did not involve a breach of copyright.

TICA Default Tenancy Control Pty Ltd (‘TICA’) offers an online service, their main clientele being real estate agents, which provides information about tenants. The information databases used by TICA, and the software which powered their service, were the subject of the dispute.

During 2014, three senior employees left TICA and incorporated a new company, known as Datakatch, which, once established was to be a direct competitor of TICA, providing substantially the same service.

TICA alleged that Datakatch had, on the whole, copied their system. TICA alleged that the legal consequences of the actions of two of the ex-employees in particular amounted to a misuse of confidential information and a breach of copyright. There were also allegations of breaches of director’s duties under the Corporations Act 2001 (Cth).

Misuse of confidential information

There was evidence that one of the ex-employees of TICA (the third respondent) had accessed the accounts of TICA members following his departure from the company by using confidential usernames and passwords (‘the confidential information’) which he had taken before his employment ceased. These usernames and passwords were used to access the code responsible for the visual layout of the website.

The Federal Court found that this taking of the confidential information breached an implied term in the third respondent’s employment contract which imposed an obligation of confidence upon the employee in respect of confidential information owned by TICA. It also amounted to a breach of a similar duty in equity. These obligations continued despite the fact that the employment relationship had ended.

Given he had obtained the confidential information by virtue of his position as a director at TICA, the third respondent was also found to have breached section 183(1) of the Corporations Act 2001 (Cth), which prevents a director or employee from improperly using information obtained during their employment to their advantage.

The situation was different in the case of another ex-employee (the second respondent). Whilst subject to the same confidentiality constraints, there was no evidence that he had misused information taken from his former employer, but rather he used information given to him by the third respondent. Because the second respondent received the information with knowledge of its origins, he was liable to be restrained from using it by an injunction in equity but he was not liable to TICA for breach of confidence.

Similarly, the second respondent was not liable under section 183 of the Corporations Act because he had not misused information obtained by virtue of his position at TICA but rather he had used information obtained from a third party.

The copyright allegations

The allegations of copyright breaches put forward by TICA were focused on four similarities between the TICA and Datakatch systems. Those similarities were between:

the source code of each party’s websites;

each party’s database schema;

common elements present in each database and

the visual form of the two websites.

It was clear that at the very least, the databases had been accessed by the former employees to obtain a rough idea of the code which determined how the website looked.

It was, however, held that no breach of copyright had occurred. There was a lack of evidence that the source code had been copied, and the few similarities between a small number of tables in the TICA and Datakatch system were found to be unremarkable given the similarity in services offered by the two companies.

The common data, which amounted to only eight matching records, was found not to be the consequence of copying, but rather the result of genuine customer enquiries.

It was found that Datacatch had copied some of the underlying code which defined the aesthetic aspect of their website, but in the absence of evidence of pervasive copying, no copying of a substantial part of the TICA system had been demonstrated.

Key Lessons

This decision serves as a helpful reminder that even where conduct does not involve a breach of copyright, that same or related conduct could amount to a misuse of confidential information, especially where that information has come to be known as a result of an employment or fiduciary relationship.